EM and Reps & Warranties: Do they survive?

[Oren K.]

So I just had a deal fall apart over Ernest Money (EM) and Reps and Warranties (R&W).

As a Canadian looking to invest for the first time in the US, I can't help but wonder if the standard practices are that different and this is just part of the learning curve. On the other hand, the seller could just be a nut bar. Here is (was?) the situation:

The property is an ~50K sq ft commercial office building in TX. We got the LOI done and started working on the sales agreement. Minor issues aside, the Seller and his lawyer were adamant that no R&W survive closure. Even such simple declarations such as if the Seller was a 'Foreign National'.

The Seller claimed that this was standard language in CA, AZ, TX and that this was boilerplate language. Our lawyer says explicative! explicative! ;). Our lawyer (based in FL but has done many deals in TX) has never done a deal where R&W do not survive. Nor have I ever seen them not surviving here in Canada.

Another deal breaker was with respect to the EM. Our position was that none get released until after closing. Their position was that it gets released as soon as the inspection period is completes. Now I have seen deals with non-refundable EM in rare cases but really? Odd things do happen; you go through DD (Reports, commitment fees, appraisals, etc.) and move to closing. If the Seller simply does not show up, not only are you out the DD costs but also the EM?

Leaving an Auction situation aside which, I think, is(?) an exception, what is standard practice in the US with respect to the survivability of R&W?

How do you view EM; as a deposit subject to performance or a Fee for the privilege of getting the DD material?

Thoughts and comments?